The Board of the Dubai Financial Services Authority in the exercise of the powers conferred on them by Article 23 of the Regulatory Law 2004, hereby make the Rules in the appendix to this instrument. The appendix to this instrument also contains the guidance made by the Chief Executive in the exercise of the powers conferred on him under the Regulatory Law 2004. Commencement:
(1) This instrument is made on 13 June 2013 and shall come into force on 14 July 2013.
Amendments to Modules:
(2) The General (GEN) module – (GEN/VER32/12-12) is repealed and replaced by Appendix 1 to this instrument and may be identified by the following reference – (GEN/VER33/07-13).
Citation:
(3) This instrument may be cited as the General Rule-making Instrument (No. 119) 2013.
(4) Appendix 1 to this instrument may be cited as the General module or GEN.
By Order of the Board
Saeb Eigner Ian Johnston
Chairman Chief Executive
13 June 2013 RM119/2013
The DFSA Rulebook
General Module
Contents
The contents of this module are divided into the following chapters, sections and appendices:
1
INTRODUCTION ... 1
1.1 Application ... 1
1.2 Overview of the module ... 1
2
FINANCIAL SERVICES ... 3
2.1 Application ... 3
2.2 Financial Service activities ... 3
2.3 By way of business ... 6
2.4 Accepting deposits ... 8
2.5 Providing credit ... 8
2.6 Providing money services ... 8
2.7 Dealing in investments as principal ... 9
2.8 Dealing in investments as agent ... 9
2.9 Arranging credit or deals in investments ... 10
2.10 Managing assets ... 11
2.11 Advising on financial products or credit ... 12
2.12 Managing a collective investment fund ... 13
2.13 Providing custody ... 13
2.14 Arranging custody ... 14
2.15 Effecting contracts of insurance ... 14
2.16 Carrying out contracts of insurance ... 15
2.17 Operating an exchange ... 15
2.18 Operating a clearing house ... 15
2.19 Insurance intermediation ... 17
2.20 Insurance management ... 18
2.21 Managing a profit sharing investment account ... 18
2.22 Operating an alternative trading system ... 19
2.23 Providing Trust Services ... 19
2.24 Providing fund administration ... 20
2.25 Acting as the Trustee of a Fund ... 21
2.26 Operating a Representative Office ... 21
2.27 Operating a Credit Rating Agency ... 22
3.
FINANCIAL PROMOTIONS ... 24
3.1 Application ... 24
3.2 Overview ... 24
3.3 Definition of a Financial Product ... 25
3.4 Scope of the Financial Promotions Prohibition ... 25
3.5 Additional Rules for Financial Promotions ... 27
4
CORE PRINCIPLES ... 29
4.1 Principles for Authorised Firms – application ... 29
4.2 The Principles for Authorised Firms ... 30
4.3 Principles for Authorised Individuals – application ... 32
4.4 The Principles for Authorised Individuals ... 32
5
MANAGEMENT, SYSTEMS AND CONTROLS ... 34
5.1 Application ... 34
5.2 Allocation of significant responsibilities ... 34
5.3 Systems and controls ... 35
6
GENERAL PROVISIONS ... 47
6.1 Application ... 47
6.2 Interpreting the rulebook ... 47
6.3 Emergency ... 48
6.4 Disclosure of regulatory status ... 48
6.5 Location of offices ... 49
6.6 Close links ... 49
6.7 Complaints against the DFSA ... 50
6.8 Public register ... 50
6.9 Communication with the DFSA ... 50
7
AUTHORISATION ... 51
7.1 Application ... 51
7.2 Application for a Licence ... 51
7.3 Application for an endorsement for Retail Clients ... 55
7.4 Licensed Functions and Authorised individuals ... 55
7.5 Mandatory appointments ... 57
7.6 Application for Authorised Individual status ... 60
8
ACCOUNTING AND AUDITING ... 63
8.1 Application ... 63
8.2 Accounting standards ... 63
8.3 Accounting records and regulatory returns ... 63
8.4 Appointment and termination of auditors ... 64
8.5 Co-operation with auditors ... 65
8.6 Function of the auditor ... 66
8.7 Registration of Auditors ... 69
8.8 Regulatory appeals ... 70
8.9 Obligations of Auditors and Audit Principals ... 71
8.10 Notification of changes ... 71
8.11 Books and records ... 72
8.12 Withdrawal of registration ... 72
8.13 Withdrawal on the DFSA’s initiative ... 73
8.14 Suspension by the DFSA ... 74
8.15 Continuing professional development ... 75
8.16 Deleted ... 75
8.18 Register of Auditors ... 76
9
COMPLAINTS HANDLING AND DISPUTE RESOLUTION ... 77
9.1 Application ... 77
9.2 Complaints handling procedures for Retail Clients ... 77
9.3 Complaints recording procedures for Professional Clients ... 80
10
TRANSITIONAL RULES ... 81
10.1 Application ... 81
10.2 General ... 82
10.3 Specific relief – COB Module ... 82
10.4 Not currently in use ... 83
10.5 Specific relief – IFR Module ... 83
10.6 Specific relief – Designated Investments ... 83
10.7 Specific relief – Corporate governance and remuneration related enhancements ... 83
10.8 Specific relief – IFR Module - Accounting Standards ... 84
10.9 Specific relief – ENF Module ... 84
11
SUPERVISION ... 85
11.1 Information gathering and DFSA access to information ... 85
11.2 Waivers ... 86
11.3 Application to change the scope of a Licence ... 87
11.4 Withdrawal of a Licence at an Authorised Firm’s request ... 87
11.5 Changes to an authorised individual status ... 88
11.6 Temporary cover ... 88
11.7 Dismissal or resignation of an Authorised Individual ... 89
11.8 Changes relating to control ... 89
11.9 Creation of additional cells of a protected cell company for an Insurer ... 97
11.10 Notifications ... 98
11.11 Provision of notifications and reports ... 106
11.12 Requirement to provide a report ... 106
11.13 Imposing Restrictions on an Authorised Person’s business or on an Authorised Person dealing with property ... 108
App1
DEPOSITS ... 110
A1.1 Definition of a deposit ... 110
App2
INVESTMENTS ... 112
A2.1 General definition of investments ... 112
A2.2 Definitions of specific securities ... 113
A2.3 Definitions of specific derivatives ... 115
A2.4 Financial instrument declared as an investment ... 117
App3
BEST PRACTICE RELATING TO CORPORATE GOVERNANCE
AND REMUNERATION ... 119
A3.2 Best practice relating to remuneration ... 121
App4
CONTRACTS OF INSURANCE ... 124
A4.1 Definition of a contract of insurance ... 124
App5
TRADE REPOSITORY ... 127
1 INTRODUCTION
1.1 Application
1.1.1 This module (GEN) applies to every Person to whom the Regulatory Law
2004 or Markets Law 2012 applies and to the same extent in relation to every such Person as that law, except to the extent that a provision of GEN provides for a narrower application.
Guidance
Pursuant to the application provisions in each chapter, only chapters 1 to 3 inclusive of GEN apply to a Representative Office.
1.2
Overview of the module
Guidance
1. Chapter 2 prescribes, pursuant to Article 41(2) of the Regulatory Law 2004, the activities which constitute a Financial Service and, pursuant to Article 42(1) of the Regulatory Law 2004, the kind of Financial Services that may be carried on by Authorised Firms and Authorised Market Institutions. It also specifies various exclusions in relation to the ‘by way of business’ requirement and, where applicable, in relation to each Financial Service. Further, the appendices contain detailed definitions of what constitutes a Deposit, Investment, Collective Investment Fund and Contract of Insurance.
2. Chapter 3 sets out the requirements for a Person making or intending to make a Financial Promotion in or from the DIFC.
3. Chapter 4 sets out the Principles for Authorised Firms and Authorised Individuals. 4. Chapter 5 specifies the requirements upon senior management to implement effective
systems and controls. There are also requirements upon the Authorised Firm to apportion material responsibility among its senior management.
5. Chapter 6 contains mainly guidance in respect of: interpretation of the Rulebook, emergency procedures, disclosure, the location of offices, close links, complaints against the DFSA and the public register.
6. Chapter 7 specifies DFSA’s authorisation requirements for any applicant intending to become an Authorised Firm or Authorised Individual.
7. Chapter 8 specifies, in relation to Authorised Persons, the auditing and accounting requirements which deal with such matters as the appointment and termination of auditors, accounts and regulatory returns and the functions of an auditor. There are also requirements for auditors to register with the DFSA.
8. Chapter 9 prescribes the manner in which an Authorised Firm must handle Complaints made against it by Retail Clients or Professional Clients.
9. Chapter 10 contains two sets of Transitional Rules.
a. Rules 10.1.2 and sections 10.2, 10.3, 10.4 and 10.5 impact on various modules of the Rulebook, particularly COB and CIR. These Rules enable Authorised Firms to make a smooth transition to the Current Regime that came into force on 1 July
Review” outlined in Consultation Paper 52. They also provide for thecontinued application of some of the provisions of the Previous Regime under the Current Regime; and
b. Section 10.6 contains Transitional Rules that allow, with effect from 4 January 2009:
i. an Authorised Person to carry on a Financial Service in respect of a Designated Investment as if that Designated Investment were a Structured Product; and
ii. a Designated Investment included in an Official List of Securities before that date to continue to be a listed Structured Product,
10. Chapter 11 specifies the DFSA’s supervisory requirements for any Authorised Person being regulated by the DFSA.
2 FINANCIAL
SERVICES
2.1 Application
2.1.1 This chapter applies to every Person to whom the Regulatory Law 2004
applies, and to the same extent in relation to every such Person as that law.
2.2 Financial
Service
activities
2.2.1 An activity constitutes a Financial Service under the Regulatory Law 2004
and these Rules where:
(a) it is an activity specified in Rule 2.2.2; and
(b) such activity is carried on by way of business in the manner described in section 2.3.
2.2.2 The following activities are specified for the purposes of Rule 2.2.1:
(a) Accepting Deposits;
(b) Providing Credit;
(c) Providing Money Services;
(d) Dealing in Investments as Principal;
(e) Dealing in Investments as Agent;
(f) Arranging Credit or Deals in Investments;
(g) Managing Assets;
(h) Advising on Financial Products or Credit;
(i) Managing a Collective Investment Fund;
(j) Providing Custody;
(k) Arranging Custody;
(l) Effecting Contracts of Insurance;
(m) Carrying Out Contracts of Insurance;
(n) Operating an Exchange;
(o) Operating a Clearing House;
(r) Managing a Profit Sharing Investment Account;
(s) Operating an Alternative Trading System;
(t) Providing Trust Services;
(u) Providing Fund Administration;
(v) Acting as the Trustee of a Fund;
(w) Operating a Representative Office; and
(x) Operating a Credit Rating Agency.
Guidance
Note that the ambit of these activities in Rule 2.2.2 may be restricted under COB, AMI or REP and may be fettered by the continuing operation of the Federal Law.
2.2.3 Each activity specified in Rule 2.2.2:
(a) is to be construed in the manner provided under these Rules; and
(b) is subject to exclusions under these Rules which may apply to such an activity.
Permitted Financial Services for Authorised Firms
2.2.4 Pursuant to Article 42(1)(a) of the Regulatory Law 2004 an Authorised Firm,
subject to the Rules, may carry on any one or more Financial Services other than Providing Money Services.
2.2.5 The Financial Services of Effecting Contracts of Insurance and Carrying Out
Contracts of Insurance may be carried on only by an Authorised Firm which by virtue of its Licence is permitted to carry on such Financial Services and no other Financial Services.
2.2.6 The Financial Service of Managing a Profit Sharing Investment Account may
be carried on only by an Authorised Firm which by virtue of an appropriate endorsement on its Licence is permitted to conduct Islamic Financial Business.
2.2.7 The Financial Service of Managing a Collective Investment Fund may be
carried on in respect of an Islamic Fund only by an Operator which by virtue of an appropriate endorsement on its Licence is permitted to conduct Islamic Financial Business.
2.2.8 A Financial Service may be carried on with or for a Retail Client only by an
Authorised Firm which is permitted to do so by endorsement on its Licence.
2.2.9 An Authorised Firm which is licenced to carry on the Financial Service of
Operating a Representative Office may not be licenced to carry on any other Financial Service.
2.2.10 An Authorised Firm (other than a Representative Office) may carry on an
activity of the kind described in Rule 2.26.1 that constitutes marketing without the need for any additional authorisation to do so.
Permitted Financial Services for Authorised Market Institutions
2.2.11 Pursuant to Article 42(1)(b) of the Regulatory Law 2004 and subject to Rule
2.2.12, an Authorised Market Institution may carry on any one or more of the following Financial Services:
(a) Operating an Exchange;
(b) Operating a Clearing House; or
(c) Operating an Alternative Trading System to the extent that such activities constitute operating a Multilateral Trading Facility as defined in Rule 2.22.1(1)(a).
2.2.12 The Financial Service of Operating an Alternative Trading System, to the
extent that such activities constitute operating a Multilateral Trading Facility, may be carried on by an Authorised Market Institution which is permitted to do so by an endorsement on its Licence.
Other permitted activities
2.2.13 (1) The activity of maintaining a Trade Repository may be carried on by
an Authorised Person which is permitted to do so by an endorsement on its Licence.
(2) In (1), a Trade Repository is a centralised registry that maintains an electronic database containing records of transactions in Investments and over-the-counter derivatives.
Guidance
1. Maintaining a Trade Repository is not a separately licensed Financial Service, but may be carried on by an Authorised Person which has on its Licence an endorsement permitting it to do so. An Authorised Person maintaining a Trade Repository is subject to some specific requirements relating to that activity, which are set out in App 5.
2. The functions of a Trade Repository promote increased transparency and integrity of information, particularly for centrally clearing over-the-counter derivatives. Currently there are no transaction reporting requirements in the DIFC which require reporting to Trade Repositories.
3. An Authorised Person does not carry on the activities of a Trade Repository to the extent that it maintains records of transactions pursuant to the record keeping requirements applicable to that firm (such as those relating to transactions carried out on behalf of its Clients by an Authorised Firm, or transactions carried out on the facilities of an Authorised Market Institution).
2.3
By way of business
2.3.1 Subject to Rules 2.3.2 and 2.3.3, for the purpose of these Rules a Person
carries on an activity by way of business if the Person:
(a) engages in the activity in a manner which in itself constitutes the carrying on of a business;
(b) holds himself out as willing and able to engage in that activity; or
(c) regularly solicits other Persons to engage with him in transactions constituting that activity.
Exclusions
2.3.2 (1) Subject to Rule 2.3.5, a Person does not carry on an activity specified
under paragraphs (a), (b), (c), (d), (e), (f), (g), (h), (j), (k), (p), (q) and (r) of Rule 2.2.2 by way of business if:
(a) the Person enters into transactions solely as a nominee for another Person and is bound to and does act on that other Person’s instructions;
(b) the Person is a Body Corporate and carries on that activity solely as principal with or for other Bodies Corporates:
(i) which are within the same Group as that Person; or
(ii) which are or propose to become participators in a joint enterprise and the transaction is entered into for the purposes of or in connection with that enterprise;
and for the purposes of the activities specified in paragraphs (g), (j), (k) and (r) of Rule 2.2.2 the assets in question belong to a Body Corporate falling within (i) or (ii); or
(c) the Person carries on the activity solely for the purposes of or in connection with the sale of goods or the supply of services to a customer of the Person or a member of the same Group, provided that:
(i) the supplier’s main business is to sell goods or supply services and not to carry on any Financial Service; and
(ii) the customer is not an individual;
and for the purposes of the activities specified in paragraphs (g), (j), (k) and (r) of Rule 2.2.2 the assets in question belong to that customer or member.
(2) A Person who is a Body Corporate does not carry on the activity specified under paragraph (d) or (e) of Rule 2.2.2 by way of business, if:
(a) the Person carries on such activities as a member of an Authorised Market Institution or Recognised Body;
(b) the Person carries on such activities for its own account or for another Body Corporate which is in the same Group as the Person, provided that any such member of the Group for which the Person acts is a wholly-owned Subsidiary of a Holding Company within the Group or is the Holding Company itself; (c) the Person restricts such activities to transactions involving or
relating only to Commodity Derivatives on that Authorised Market Institution or Recognised Body;
(d) the main business of the Person is dealing in relation to Commodity Derivatives; and
(e) the Person is not part of a Group whose main business is the provision of financial services.
2.3.3 A Person does not carry on an activity specified under paragraphs (d), (e), (f)
or (h) of Rule 2.2.2 by way of business if the activity is carried on solely for the purposes of or in connection with the acquisition or disposal of Shares in a Body Corporate, other than an Investment Company or Investment Limited Liability Partnership, provided that:
(a) such Shares carry at least 50% of the voting rights or the acquisition will take an existing holding to at least 50%; or
(b) the object of the transaction may reasonably be regarded as being the acquisition of day to day control of the Body Corporate; and
(c) he is to enter as principal into the transaction.
2.3.4 (1) A Person who is a Trustee does not carry on an activity specified
under paragraphs (d), (g), and (j) of Rule 2.2.2 by way of business in circumstances where he is acting as a trustee.
(2) A Person who is an individual does not carry on an activity specified under paragraph (t) by way of business where he is acting as trustee, enforcer or protector or where he is arranging for a Person to act as trustee, in respect of less than three (3) trusts.
2.3.5 (1) A Person does not carry on an activity specified under paragraphs (d),
(e), (f), (g), (h), (i), (j), (k), (p), (t), (u) and (v) of Rule 2.2.2 by way of business if:
(a) that Person is the holder of a licence under the SFO Regulations to establish a Single Family Office in the DIFC; and
(b) the activity is carried on exclusively for the purposes of, and only in so far as it is, carrying out its duties as a Single Family Office.
(2) A Private Trust Company or Family Fiduciary Structure does not carry on an activity specified under paragraph (t) of Rule 2.2.2 by way of business if it:
(a) carries on that activity exclusively for the purposes of, and only in so far as it is, providing services to a Single Family; and
(b) does not solicit trust business from, or provide trust services to, any Person outside the structure of the Single Family Office and outside the Single Family.
2.4 Accepting
deposits
2.4.1 In Rule 2.2.2, Accepting Deposits means accepting Deposits where:
(a) money received by way of Deposit is lent to others; or
(b) any other activity of the Person accepting the Deposit is financed, wholly or to a material extent, out of the capital of or returns on any money received by way of Deposit.
2.5 Providing
credit
2.5.1 In Rule 2.2.2, Providing Credit means providing a Credit Facility to a Person
in his capacity as a borrower or potential borrower.
Exclusions
2.5.2 A Person who is an Authorised Firm does not Provide Credit where the
provision of the Credit Facility is incidental to or in connection with the trading of Investments, or conducting Insurance Business.
Guidance
1. Where an Authorised Firm is providing brokerage services pursuant to its Financial Service of Dealing in Investments as Agent, it may in the ordinary course of that business also be necessary to provide margin lending facilities to its Clients. In doing so the Authorised Firm will not be considered to be Providing Credit to its Client. 2. Where an Authorised Firm is Effecting Contracts of Insurance or Carrying Out
Contracts of Insurance, it may in the ordinary course of that Insurance Business be necessary to provide an instalment contract to a Client with respect to the payment of an insurance premium. In doing so the Authorised Firm will not be considered to be Providing Credit to its Client.
2.6
Providing money services
2.6.1 (1) In Rule 2.2.2, Providing Money Services means providing currency
exchange or money transmission. (2) In (1) ‘money transmission’ means:
(a) selling or issuing payment instruments;
(c) receiving money or monetary value for transmission, including electronic transmission, to a location within or outside the DIFC.
Exclusions
2.6.2 A Person who is an Authorised Firm does not Provide Money Services if it
does so in relation to the carrying on of another Financial Service where Providing Money Services is in connection with and a necessary part of that other Financial Service.
2.7
Dealing in investments as principal
2.7.1 In Rule 2.2.2, Dealing in Investments as Principal means buying, selling,
subscribing for or underwriting any Investment as principal.
Exclusions
2.7.2 A Person does not Deal in Investments as Principal merely by accepting an
instrument, creating or acknowledging indebtedness in respect of any loan, credit, guarantee or other similar financial accommodation which that person has made or provided.
2.7.3 A Person does not Deal in Investments as Principal by issuing or redeeming
Securities issued by that person.
2.7.4 A Person who is not an Authorised Firm or an Authorised Market Institution
does not Deal in Investments as Principal in relation to an Investment by entering into a transaction with or through an Authorised Firm or a Regulated Financial Institution.
2.7.5 A Person who is an Authorised Firm does not Deal in Investments as
Principal if in the course of managing the assets of a Private Equity Fund:
(a) the Person makes an initial subscription for Units of that Fund; and
(b) the Units are held by that Person for a period of more than 12 months.
2.8
Dealing in investments as agent
2.8.1 In Rule 2.2.2, Dealing in Investments as Agent means buying, selling,
subscribing for or underwriting any Investment as agent.
Exclusions
2.8.2 A Person does not Deal in Investments as Agent if the activity:
(a) is carried on in the course of Providing Legal Services or Providing Accountancy Services which does not otherwise consist of the carrying on of Financial Services;
(b) may reasonably be regarded as a necessary part of any other services provided in the course of that Providing Legal Services or Providing Accountancy Services; and
(c) is not remunerated separately from the other services.
2.8.3 A Person does not Deal in Investments as Agent if that Person:
(a) is merely receiving and transmitting a Client order in respect of an Investment; and
(b) does not execute the Client order for and on behalf of the Client or otherwise commit the Client to the transaction relating to the relevant Investment.
2.9
Arranging credit or deals in investments
2.9.1 (1) In Rule 2.2.2 Arranging Credit or Deals in Investments means:
(a) making arrangements with a view to another Person, whether as principal or agent, buying, selling, subscribing for or underwriting an Investment; or
(b) making arrangements for another Person, whether as principal or agent, to borrow money by way of a Credit Facility.
(2) The arrangements in (1) include:
(a) arrangements which do not bring about the transaction; and
(b) arrangements comprising or involving the receipt and transmission of Client orders in relation to Investments.
(3) The arrangements in (1) do not include:
(a) arrangements which amount to Operating an Alternative Trading System; or
(b) arrangements of the kind described in Rule 2.26.1 that constitute marketing.
Guidance
In regard to arrangements under Rule 2.9.1(3)(b), pursuant to Rule 2.2.10, an Authorised Firm (other than a Representative Office) may carry on an activity of the kind described in Rule 2.26.1 that constitutes marketing without the need for any additional authorisation to do so.
Exclusions
2.9.2 There are excluded from Rule 2.9.1 any arrangements for a transaction into
which the Person making the arrangements enters or is to enter whether as principal or agent for some other Person.
2.9.3 A Person does not Arrange Credit or Deals in Investments merely by
providing means by which one party to a transaction is able to communicate with other such parties.
2.9.4 A Person does not Arrange Credit or Deals in Investments by making
arrangements under which another Person accepts or is to accept an instrument creating or acknowledging indebtedness in respect of any loan, credit, guarantee or other similar financial accommodation which he or his principal has made or provided.
2.9.5 A Person does not Arrange Credit or Deals in Investments merely by making
arrangements having as their sole purpose the provision of finance to enable a Person to buy, sell, subscribe for or underwrite Investments.
2.9.6 A Person does not Arrange Credit or Deals in Investments by making
arrangements for the issue or redemption of Securities issued by it.
2.9.7 A Person does not Arrange Credit or Deals in Investments if the activity:
(a) is carried on in the course of Providing Legal Services or Providing Accountancy Services, which does not otherwise consist of the carrying on of Financial Services;
(b) may reasonably be regarded as a necessary part of any other services provided in the course of Providing Legal Services or Providing Accountancy Services; and
(c) is not remunerated separately from the other services.
2.10 Managing
assets
2.10.1 In Rule 2.2.2, Managing Assets means managing on a discretionary basis
assets belonging to another Person if the assets include any Investment or rights under a contract of Long-Term Insurance, not being a contract of reinsurance.
Exclusions
2.10.2 A Person who is not an Authorised Firm or an Authorised Market Institution
does not Manage Assets if:
(a) he is a Person formally appointed in writing by the owner of the assets to manage the assets in question; and
(b) all day-to-day decisions relating to the Investments which are included in those assets are taken by an Authorised Firm or a Regulated Financial Institution.
Guidance
A Person does not become a Fund Manager of a Fund merely by being appointed by a Fund Manager of a Fund to provide the Financial Service of Managing Assets to the Fund. This is because the Fund Manager remains legally accountable to the Unitholders of the Fund for the
2.11 Advising
on
financial products or credit
2.11.1 (1) In Rule 2.2.2, Advising on Financial Products or Credit means giving
advice to a Person:
(a) in his capacity as an investor or potential investor, or in his capacity as agent for an investor or a potential investor on the merits of his buying, selling, holding, subscribing for or underwriting a particular financial product (whether as principal or agent); or
(b) in his capacity as a borrower or potential borrower or as agent for a borrower or potential borrower on the merits of his entering into a particular Credit Facility.
(2) Advice in (1)(a) and (b) includes a statement, opinion or report:
(a) where the intention is to influence a Person, in making a decision, to select a particular financial product or an interest in a particular financial product or to enter into a particular Credit Facility; or
(b) which could reasonably be regarded as being intended to have such an influence.
(3) For the purposes of this Rule and Rule 2.11.2, a “financial product” is an Investment, Deposit, Profit Sharing Investment Account or rights under a contract of Long-Term Insurance, that is not a contract of reinsurance.
Exclusions
2.11.2 A Person does not Advise on Financial Products or Credit by giving advice in
any newspaper, journal, magazine, broadcast service or similar service in any medium if the principal purpose of the publication or service, taken as a whole, is neither:
(a) that of giving advice of the kind mentioned in Rule 2.11.1; nor
(b) that of leading or enabling Persons:
(i) to buy, sell, subscribe for or underwrite a particular financial product; or
(ii) to enter into a particular Credit Facility.
2.11.3 A Person does not Advise on Financial Products or Credit if the activity:
(a) is carried on in the course of Providing Legal Services or Providing Accountancy Services, which does not otherwise consist of the carrying on of Financial Services;
(b) may reasonably be regarded as a necessary part of any other services provided in the course of Providing Legal Services or
(c) is not remunerated separately from the other services.
2.12 Managing a collective investment fund
2.12.1 (1) In Rule 2.2.2, Managing a Collective Investment Fund means:
(a) being legally accountable to the Unitholders in the Fund for the management of the property held for or within a Fund under the Fund’s Constitution; and
(b) establishing, managing or otherwise operating or winding up a Collective Investment Fund; and
(2) To the extent that any activity under (1) constitutes Managing Assets, Providing Fund Administration, Dealing as Agent, Dealing as Principal, Arranging Credit or Deals in Investments, or Providing Custody, such a Financial Service is taken to be incorporated within Managing a Collective Investment Fund.
(3) The Person referred to in (1) is a Fund Manager.
Exclusions
2.12.2 Pursuant to Article 20(3) of the Collective Investment Law 2010, a Person is
hereby prescribed by the DFSA as not Managing a Collective Investment Fund merely because that Person:
(a) is acting as an agent, employee or delegate of the Fund Manager; or
(b) takes steps to wind up or dissolve a Fund or remedy a defect that led to a Fund being deregistered.
2.13 Providing
custody
2.13.1 (1) In Rule 2.2.2, Providing Custody means one or more of the following
activities:
(a) safeguarding Investments belonging to another Person;
(b) in the case of a Fund, safeguarding Fund Property;
(c) acting as a Central Securities Depository; or
(d) administering Investments or Fund Property for the purpose of (a) and (b).
(2) In (1)(d), the following activities do not constitute the ‘administration of such Investments or Fund Property’:
(b) converting currency; or
(c) receiving documents relating to an Investment or Fund Property for the purpose of onward transmission to, from or at the direction of the Person to whom the Investment or Fund Property belongs.
(3) In (1)(c), “acting as a Central Securities Depository” means holding securities in uncertificated (dematerialised) form to enable book entry transfer of such securities for the purposes of clearing or settlement of transactions executed on a facility operated by an Authorised Market Institution or an Alternative Trading System or a similar facility regulated and supervised by a Financial Services Regulator.
Guidance
A Person does not become a Fund Manager of a Fund merely by being appointed by a Fund Manager of a Fund to provide the Financial Service of Providing Custody to the Fund. This is because the Fund Manager remains legally accountable to the Unitholders of the Fund for the safe custody and proper management of the Fund in accordance with its Constitution and Prospectus.
2.14 Arranging
custody
2.14.1 In Rule 2.2.2, Arranging Custody means arranging for one or more Persons to
carry on the activity described in Rule 2.13.1.
Exclusions
2.14.2 (1) A Person (the ‘introducer’) does not Arrange Custody by introducing a
Person to another Person (the ‘custodian’) who is authorised by the DFSA or a Financial Services Regulator to carry on the activity described in Rule 2.13.1, if the introducer is not connected to the custodian.
(2) For the purposes of (1) an introducer is connected to a custodian if:
(a) the custodian is a member of the same Group as the introducer; or
(b) the introducer is remunerated by the custodian or a member of the custodian’s Group for making the introduction.
2.15 Effecting
contracts of insurance
2.15.1 In Rule 2.2.2, Effecting Contracts of Insurance means effecting such
2.16 Carrying out contracts of insurance
2.16.1 In Rule 2.2.2, Carrying Out Contracts of Insurance means carrying out such
contracts as principal.
2.17 Operating an exchange
2.17.1 (1) In Rule 2.2.2, Operating an Exchange means operating a facility which
functions regularly and brings together multiple third party buying and selling interests in Investments, in accordance with its non-discretionary rules, in a way that can result in a contract in respect of Investments admitted to trading or traded on the facility.
(2) The facility referred to in (1) may be organised on a temporary or permanent basis and can be an order driven system, a quote driven system or a hybrid of such systems that enables the market to operate electronic trading or trading by other means.
(3) To the extent that any activity under (1) constitutes Dealing in Investments as Agent, Arranging Credit or Deals in Investments or Arranging Custody, such Financial Services are taken to be incorporated within Operating an Exchange, provided such activity is carried out as an incidental and integral part of the activities of Operating an Exchange.
Guidance
1. An Authorised Market Institution authorised to Operate an Exchange may carry on the Financial Service of operating a Multilateral Trading Facility, as defined in Rule 2.22.1(1)(a), provided it has an endorsement on its Licence that permits it to do so (see Rule 2.2.12).
2. An Authorised Market Institution may also act as a Trade Repository if it has an endorsement on its Licence that permits it to do so (see Rule 2.2.14). Acting as a Trade Repository does not constitute a Financial Service but is subject to the additional conduct requirements in GEN App 5.
2.18 Operating a clearing house
2.18.1 (1) In Rule 2.2.2, operating a Clearing House means operating a facility
where confirmation, clearance and settlement of transactions in Investments are carried out in accordance with the non-discretionary rules of the facility, under which the Person operating the facility:
(a) becomes a Central Counterparty (“CCP”); or
(b) provides a book-entry Securities Settlement System (“SSS”),
regardless of whether or not such a Person also operates a Central Securities Depository.
(2) In (1), confirmation, clearance and settlement means the process of:
(a) establishing settlement positions, including the calculation of net positions arising from any transactions in Investments (the transactions);
(b) checking that Investments, cash or both, including margin, are available to secure the exposure arising from the transactions; and
(c) securing the timely discharge (whether by performance, compromise or otherwise) of the rights and liabilities in relation to the transactions.
(3) In (1)(a), a Person operates as a CCP where it:
(a) ensures the performance of open contracts relating to Investments made on a facility for trading Investments; and
(b) does so by interposing itself between counterparties to such contracts by becoming either the buyer to every seller, or the seller to every buyer.
(4) In (1)(b), a Person operates an SSS where it operates a system which enables Investments held in accounts to be transferred and settled by book entry according to a set of predetermined multilateral rules.
(5) Acting as a Central Securities Depository in (1) means holding securities in uncertificated (dematerialised) form to enable book entry transfer of such securities for the purposes of clearing or settlement of transactions on its own facility and on any other similar facility, including an Alternative Trading Facility or a facility supervised or regulated by another Financial Services Regulator.
(6) To the extent that any activity under (1) constitutes Dealing In Investments as Principal, Dealing in Investments as Agent, Arranging Credit or Deals in Investments, Managing Assets or Arranging Custody, such Financial Services are taken to be incorporated within Operating a Clearing House, provided such activities are carried out as an incidental and integral part of Operating a Clearing House.
Guidance
1. The activity of operating a Central Securities Depository may be carried on by an Authorised Market Institution licensed to Operate a Clearing House in conjunction with its regulated activities, particularly operating an SSS. An Authorised Firm which has a licence authorising it to carry on Custody Services may also operate a CSD under its licence (see GEN Rule 2.13.1(3)). If a Clearing House were to operate a CSD through a subsidiary, that subsidiary would need to be licensed separately as an Authorised Firm Providing Custody.
2. An Authorised Market Institution Licensed to Operate a Clearing House may also act as a Trade Repository if it has an endorsement on its Licence that permits it to do so (see Rule 2.2.14). Acting as a Trade Repository does not constitute a Financial Service but is subject to the additional conducts requirements in GEN App 5.
2.19 Insurance
intermediation
2.19.1 (1) In Rule 2.2.2, Insurance Intermediation means:
(a) advising on insurance;
(b) acting as agent for another Person in relation to the buying or selling of insurance for that other Person; or
(c) making arrangements with a view to another Person, whether as principal or agent, buying insurance.
(2) In (1)(a), ‘advising’ means giving advice to a Person in his capacity as a policyholder or potential policyholder, or in his capacity as agent for a policyholder or potential policyholder on the merits of his entering into a Contract of Insurance whether as principal or agent.
(3) In (2), ‘advice’ includes a statement, opinion or report:
(a) where the intention is to influence a Person, in making a decision, to select a particular Contract of Insurance or insurance cover; or
(b) which could reasonably be regarded as being intended to have such influence.
(4) The arrangements in (1)(c) include arrangements which do not bring about the transaction.
(5) The arrangements in (1)(c) do not include arrangements of the kind described in Rule 2.26.1 that constitute marketing.
Guidance
In regard to arrangements under Rule 2.19.1(5), pursuant to Rule 2.2.10, an Authorised Firm (other than a Representative Office) may carry on an activity of the kind described in Rule 2.26.1 that constitutes marketing without the need for any additional authorisation to do so.
Exclusions
2.19.2 A Person does not carry on the activities specified in Rule 2.19.1(1)(b) or (c) if
he enters or is to enter into a transaction in respect of a Contract of Insurance as principal.
2.19.3 A Person does not carry on Insurance Intermediation if the activity:
(a) is carried on in the course of any professional business which does not otherwise consist of the carrying on of Financial Services;
(b) may reasonably be regarded as a necessary part of any other services provided in the course of that professional business; and
(c) is not remunerated separately from the other services.
service in any medium if the principal purpose of the publication or service, taken as a whole, is neither:
(a) that of giving advice of the kind mentioned in Rule 2.19.1; nor
(b) that of leading or enabling Persons to buy types of insurance.
2.19.5 A Person does not arrange a Contract of Insurance merely by providing the
means by which one party to a transaction is able to communicate with other such parties.
2.19.6 A Person who is an Authorised Firm does not advise in relation to an
Insurance Contract if it is authorised under its Licence to carry on the Financial Service of Advising on Financial Products or Credit, to the extent the advice relates to a contract of Long-Term Insurance not being a contract of reinsurance.
2.19.7 A Person who is an Authorised Firm does not arrange a Contract of Insurance
if it is authorised under its Licence to carry on the Financial Service of Arranging Credit or Deals in Investments, to the extent that the arranging relates to rights under a contract of Long-Term Insurance not being a contract of reinsurance.
2.20 Insurance
management
2.20.1 (1) In Rule 2.2.2, Insurance Management means providing management
services or exercising managerial functions for an insurer.
(2) In (1) management services and managerial functions include administration and underwriting.
(3) In (1) an ‘insurer’ means a Person effecting or carrying out Contracts of Insurance.
Exclusions
2.20.2 A Person does not provide Insurance Management to an insurer if he is an
Employee of that insurer.
2.20.3 A Person who is an Authorised Firm does not provide Insurance Management
if it is an Insurer.
2.21 Managing a profit sharing investment account
2.21.1 In Rule 2.2.2, Managing a Profit Sharing Investment Account means
managing an account or portfolio which is a Profit Sharing Investment Account.
2.22 Operating an alternative trading system
2.22.1 (1) In Rule 2.2.2, Operating an Alternative Trading System means:
(a) operating a Multilateral Trading Facility (“MTF”); or
(b) operating an Organised Trading Facility (“OTF”).
(2) In (1)(a), a Person operates an MTF if that Person operates a system which brings together multiple third party buying and selling interests in Investments, in accordance with its non-discretionary rules, in a way that results in a contract in respect of such Investments.
(3) In (1)(b), a Person operates an OTF if that Person operates a system which brings together multiple third party buying and selling interests in Investments, in accordance with its discretionary rules, in a way that results in a contract in respect of such Investments.
Guidance
The main distinction between operating an MTF and operating an OTF is that the former is operated in accordance with the non-discretionary rules adopted and implemented by the operator, whereas the latter is operated in accordance with the discretionary rules of the operator. Accordingly, a Person operating an OTF has more flexibility relating to how it applies its rules to participants on its facility, whereas a Person operating an MTF is required to apply its rules in a non-discretionary manner across all participants on its facility.
Exclusion
2.22.2 A Person does not carry on the activity of the kind specified in Rule 2.22.1 if it
operates a facility which is merely an order routing system where buying and selling interests in, or orders for, Investments are merely transmitted but do not interact.
2.23 Providing Trust Services
2.23.1 In Rule 2.2.2, Providing Trust Services means:
(a) the provision of services with respect to the creation of an express trust;
(b) arranging for any Person to act as a trustee in respect of any express trust;
(c) acting as trustee in respect of an express trust;
(d) the provision of Trust Administration Services in respect of an express trust; or
Guidance
Providing generic advice on the desirability of using a trust does not amount to Providing Trust Services as defined in Rule 2.23.1.
Exclusions
2.23.2 A Person meeting part (1)(d) or (e) of the definition of a DNFBP does not
provide Trust Services where it only:
(a) arranges for a Person to act as trustee in respect of an express trust; or
(b) provides services with respect to the creation of an express trust;
provided that:
(i) the provision of such services is solely incidental to the practice of law or accounting as the case may be; and
(ii) the DNFBP is not holding itself out as Providing Trust Services.
Guidance
Acting as trustee, protector or enforcer or Providing Trust Administration Services are not activities incidental to the practice of law or accounting and require a Licence.
2.23.3 A Person is not Providing Trust Services if that Person is the Trustee of a
Fund and the activities are in connection with or arise from, acting as the Trustee of the Fund.
2.24 Providing fund administration
2.24.1 In Rule 2.2.2, Providing Fund Administration means providing one or more of
the following services in relation to a Fund:
(a) processing dealing instructions including subscriptions, redemptions, stock transfers and arranging settlements;
(b) valuing of assets and performing net asset value calculations;
(c) maintaining the share register and Unitholder registration details;
(d) performing anti money laundering requirements;
(e) undertaking transaction monitoring and reconciliation functions;
(f) performing administrative activities in relation to banking, cash management, treasury and foreign exchange;
(g) producing financial statements, other than as the Fund’s registered auditor; or
(h) communicating with participants, the Fund, the Fund Manager, and investment managers, the prime brokers, the Regulators and any other parties in relation to the administration of the Fund.
2.25 Acting as the Trustee of a Fund
2.25.1 (1) In Rule 2.2.2, Acting as the Trustee of a Fund means holding the
assets of a Fund on trust for the Unitholders where the Fund is in the form of an Investment Trust.
(2) To the extent that any activity under (1) constitutes Providing Fund Administration or Providing Custody, such a Financial Service is taken to be incorporated within Acting as the Trustee of a Fund.
Guidance
Rule 2.25.1(2) alleviates any requirement upon a Trustee to obtain further authorisations for certain Financial Services where the activities fall within the ordinary scope of the activity of Acting as the Trustee of a Fund. The provision also facilitates the delegation of these discrete activities under CIR section 7.3.
Exclusions
2.25.2 A Person is not Acting as the Trustee of a Fund merely because he is acting
as an agent, employee or delegate of a Trustee.
2.26 Operating a Representative Office
2.26.1 (1) In Rule 2.2.2 Operating a Representative Office means the marketing of
one or more financial services or financial products which are offered in a jurisdiction other than the DIFC.
(2) For the purposes of (1) ‘marketing’ means:
(a) providing information on one or more financial products or financial services;
(b) engaging in promotions in relation to (a); or
(c) making introductions or referrals in connection with the offer of financial services or financial products;
provided that such activities do not constitute:
(d) Advising on Financial Products or Credit; or
(e) receiving and transmitting orders in relation to a financial product.
(3) For the purposes of (1) and (2) (a), (c) and (d), the term ‘financial product’ means an Investment, a Credit Facility, a Deposit, a Profit Sharing Investment Account or a Contract of Insurance.
Exclusions
2.26.2 An Authorised Firm other than a Representative Office does not Operate a
Representative Office if it undertakes any activities of the kind described in Rule 2.26.1 that constitute marketing.
2.26.3 Any communication which amounts to marketing in respect of a financial
service or financial product, which is issued by or on behalf of a government or non-commercial government entity, does not constitute marketing for the purposes of Rule 2.26.1.
2.27 Operating a Credit Rating Agency
2.27.1 (1) In Rule 2.2.2, Operating a Credit Rating Agency means undertaking
one or more Credit Rating Activities for the purpose of producing a Credit Rating with a view to that Credit Rating being:
(a) disseminated to the public; or
(b) distributed to a Person by subscription;
whether or not it is in fact disseminated or distributed.
(2) For the purposes of (1):
(a) Credit Rating Activities are data and information analysis relating to a Credit Rating or the evaluation, approval, issue or review of a Credit Rating; and
(b) a Credit Rating is an opinion expressed using an established and defined ranking system of rating categories regarding the creditworthiness of a Rating Subject.
(3) In (2), a Rating Subject means:
(a) a Person other than a natural person;
(b) a credit commitment; or
(c) a debt or debt-like Investment.
Exclusions
2.27.2 A Person does not Operate a Credit Rating Agency where that Person
prepares any credit scores, credit scoring systems or similar assessments relating to obligations arising from consumer, commercial or industrial relationships.
Guidance
1. The effect of Rule 2.27.1 is that even if a Person undertakes from a place of business in the DIFC some but not all of the Credit Rating Activities for the purpose of producing a Credit Rating, that Person needs to have a Licence authorising it to Operate a Credit Rating Agency.
2. Where a Credit Rating Agency outsources some of its Credit Rating Activities, it will need to ensure that it meets the relevant requirements, including those relating to outsourcing, in Rule 5.3.21.
3. There is no express prohibition against carrying on the Financial Service of Operating a Credit Rating Agency by Persons who are authorised to carry on other Financial Services. However, the specific conduct requirements applicable to Credit Rating Agencies in COB chapter 8, include a prohibition against certain types of consultancy and advisory services being provided by a Credit Rating Agency. Therefore, even if a Credit Rating Agency has an appropriate Licence authorising it to provide advice on financial products, it will not be able to provide the prohibited type of consultancy and advisory services.
4. A Person may provide a private Credit Rating for the exclusive use of another Person (Second Person) without seeking a License authorising it to Operate a Credit Rating Agency where the Credit Rating is produced based on the request of the Second Person and is not intended to be disseminated to the public or distributed by subscription. Such a Person may wish to include an express warning in the Credit Rating that it is intended only for the exclusive use of the Second Person and obtain from such Second Person a prior written undertaking that the Credit Rating will not be disseminated to the public or distributed on subscription.
5. Credit scoring referred to in Rule 2.27.2 is a method of assessing creditworthiness. A credit score is primarily based on credit report information typically sourced from credit bureaus. A Person does not become a Credit Rating Agency merely by preparing or providing credit assessments. Lenders, such as banks and credit card companies, use credit scores to evaluate the potential risk posed by lending money to consumers and to mitigate losses due to bad debt. Insurance companies, and government departments also employ the same techniques.
3. FINANCIAL
PROMOTIONS
3.1 Application
3.1.1 This chapter applies to any Person who approves, makes or intends to make
a Financial Promotion in or from the DIFC.
3.1.2 Rules 3.4.1 to 3.6.3 do not apply to a Person who makes an Offer which is in
accordance with the requirements relating to:
(a) an Offer of Securities under the Markets Law 2012 and the MKT Rules; or
(b) an Offer of Units under the Collective Investment Law 2010 and CIR Rules.
3.2 Overview
3.2.1 The Rules in this chapter are made for the purposes of the Financial
Promotions Prohibition in Article 41A of the Regulatory Law 2004.
Guidance
1. Article 41A(3) of the Regulatory Law 2004 defines a Financial Promotion as:
“Any communication, however made, which invites or induces a Person to: (a) enter into, or offer to enter into, an agreement in relation to the
provision of a financial service; or
(b) exercise any rights conferred by a financial product or acquire, dispose of, underwrite or convert a financial product.”
2. The Guidance in this chapter is designed to help explain the scope of the Financial Promotions Prohibition.
3. The definition of a Financial Promotion is very broad and encompasses the definitions of a “financial promotion” in Article 19(3) of the Collective Investment Law 2010. A Financial Promotion also includes “marketing material” as defined elsewhere in the Rulebook.
4. The DFSA considers that a Financial Promotion may be made in any manner and by any form including, but not limited to, an oral, electronic or written communication and includes an advertisement, or any form of promotion or marketing. A disclaimer stating that a communication is not a Financial Promotion would not, on its own, prevent a communication from being a Financial Promotion.
5. A Person who is permitted to make a Financial Promotion in the DIFC pursuant to these Rules should ensure that in making such a Financial Promotion he does not breach the Financial Services Prohibition in Article 41 of the Regulatory Law 2004.
6. Depending on the nature and scale of the activities, if a Person makes Financial Promotions on a regular basis or for a prolonged period while physically located in the DIFC, for example by way of a booth, meetings or conferences, the DFSA may consider such activities as constituting the carrying on of a Financial Service, such as Operating a Representative Office. The DFSA considers that in the context of Financial Promotions, “a regular basis” would be anything more than occasional and "a prolonged period" would usually be anything more than 3 consecutive days.
3.3
Definition of a Financial Product
3.3.1 Pursuant to Article 41A(4) of the Regulatory Law 2004, “financial product” in
Article 41A(3)(b) of the Regulatory Law 2004 is hereby prescribed to mean an Investment, a Credit Facility, a Deposit, a Profit Sharing Investment Account, or a Contract of Insurance.
3.4
Scope of the Financial Promotions Prohibition
3.4.1 (1) A Person shall not, subject to (2), make a Financial Promotion in or
from the DIFC unless that Person is an Authorised Person.
(2) A Person other than an Authorised Person may make a Financial Promotion in or from the DIFC if, and only to the extent that, the Person:
(a) is licensed and supervised by a Financial Services Regulator in the UAE;
(b) is a Recognised Body or External Fund Manager;
(c) is a Reporting Entity and makes a Financial Promotion in or from the DIFC exclusively for the purpose of discharging its mandatory disclosure requirements; or
(d) makes an exempt Financial Promotion as specified in (3).
(3) For the purposes of (2)(d), a communication is an “exempt Financial Promotion” if it is:
(a) approved by an Authorised Firm;
(b) directed at and capable of acceptance exclusively by a Person who appears on reasonable grounds to be a Professional Client of the type specified in COB Rule 2.3.2(2);
(c) made to a Person in the DIFC (the “recipient”) as a result of an unsolicited request by the recipient to receive the Financial Promotion;
(d) made or issued by or on behalf of a government or non-commercial government entity; or
regarded as incidental to and a necessary part of the provision of such services.
3.4.2 A Person does not breach the Financial Promotions Prohibition if:
(a) the Person causes a Financial Promotion to be made in the course of providing a facility which is a mere conduit for the making of the Financial Promotion;
(b) the Person is located outside the DIFC and makes a Financial Promotion which appears, on reasonable grounds, to be a communication which is not directed at or intended to be acted upon by a Person in the DIFC; or
(c) the Financial Promotion is not made for a commercial or business purpose.
Guidance
1. Examples of a mere conduit would include a newspaper or magazine, a website carrying third-party banner ads, a postman or courier, a person paid to hand out promotional material to the public and an event venue - unless in each case they were the originator i.e the Person who makes the Financial Promotion.
2. In Rule 3.4.2(b) the DFSA considers that the following non-exhaustive list of factors may each be indicative of whether or not a Financial Promotion is “intended to be acted upon by, or targeted at, Persons in the DIFC”:
i. whether it is expressed to be for a Person or type of Person in the DIFC; ii. whether it is sent to an address (including a P.O. Box) in the DIFC; iii. whether it is physically distributed to Persons in the DIFC;
iv. whether it takes place in the DIFC; v. whether it makes reference to the DIFC; vi. whether it appears in a DIFC publication;
vii. whether it appears on a DIFC-based or related website or other media viii. whether it is sent to the email of a Person in the DIFC; or
ix. whether it contains a prominent and clear disclaimer on its face that it is not intended to be acted upon by Persons in the DIFC.
3. The DFSA in applying Rule 3.4.2(c) will generally consider that for a communication to be made “for a commercial or business purpose” there must be a commercial element to the Financial Promotion, whether or not the Financial Promotion actually leads to the provision of any financial service. However, the DFSA considers that “for a commercial or business purpose” requires a commercial or business interest on the part of the communicator and the nature of the communicator’s business need not be related to any specific financial service.
4. The DFSA considers that a Person located outside the DIFC who makes a Financial Promotion into the DIFC, makes that communication in the DIFC. The DFSA considers that the prohibition in Article 41A(1) applies irrespective of where the communicator of the Financial Promotion is located.
3.5
Additional Rules for Financial Promotions
3.5.1 (1) A Person in Rule 3.4.1(2) (a) to (d) must, subject to (2), take
reasonable care to ensure that any Financial Promotion it makes in or from the DIFC:
(a) is clear, fair and not misleading;
(b) includes the Person’s name, address and regulatory status;
(c) if it is intended only for Professional Clients, is not sent or directed to any Person who appears on reasonable grounds not to be a Professional Client, and contains a clear statement that only a Person meeting the criteria for a Professional Client should act upon it; and
(d) which is provided to or directed at a Retail Client and contains any information or representation relating to past performance, or any forecast based on past performance or on any other assumptions:
(i) presents a balanced view of the financial products or financial services to which the Financial Promotion relates;
(ii) identifies, in an easy to understand manner, the information from which the past performance or forecast is derived and how any key facts and assumptions used in that context are drawn; and
(iii) contains a prominent warning that past performance is not necessarily a reliable indicator of future performance.
(2) A Person described in Rule 3.4.1(2)(a) who makes a Financial Promotion to an existing client in the DIFC is not required to comply with (1) provided that in making the Financial Promotion that Person complies with the requirements of the relevant Financial Services Regulator in the UAE which relate to Financial Promotions.
Guidance
1. In presenting information relating to past performance of a financial product or financial service, a Person should use a reputable independent actuarial, financial or statistical reporting service provider.
2. The effect of Rule 3.5.1(2) is that a Person who is licensed and regulated by a Financial Services Regulator in the UAE is not required to comply with Rule 3.5.1(1) when communicating with an existing client. However, when making a Financial Promotion to a prospective client in the DIFC, Rule 3.5.1(1) does apply to such Persons, as do the prohibitions on the making of offers contained in the Markets Law 2012 and Collective Investment Law 2010 respectively.
3.5.2 A Person must not, in any Financial Promotion, attempt to limit or avoid any
3.6
Approval of Financial Promotions by an Authorised Firm
3.6.1 For the purposes of GEN Rule 3.4.1(3)(a), an Authorised Firm must not
approve a Financial Promotion unless:
(a) the Financial Promotion includes a clear and prominent statement that it has been “approved by” the relevant Authorised Firm; and
(b) the Financial Promotion is made in accordance with the requirements in Section 3.5.
3.6.2 An Authorised Firm must not approve a Financial Promotion which is directed
at a Person who appears on reasonable grounds to be a Retail Client unless:
(a) it has an endorsement on its License which permits it to carry on a Financial Service with or for a Retail Client; and
(b) the scope of its License includes the Financial Service and, if applicable, the particular financial product, to which the Financial Promotion relates.
3.6.3 An Authorised Firm must ensure that a Financial Promotion it has approved
complies with the requirements in this chapter on an on-going basis.
Guidance
An Authorised Firm which proposes to approve a Financial Promotion where all or part of that promotion will be real time, such as a live event, will need to consider whether it is able to comply effectively with any relevant Rules in relation to the Financial Promotion or its approval
4
CORE PRINCIPLES
4.1
Principles for Authorised Firms – application
4.1.1 (1) The twelve Principles for Authorised Firms, set out in section 4.2,
apply subject to (2) and (3) to every Authorised Firm in accordance with Rules 4.1.2 and 4.1.3.
(2) The twelve Principles for Authorised Firms, set out in section 4.2, do not apply to an Authorised Firm which is a Representative Office.
(3) An Authorised Firm which is a Credit Rating Agency does not have to comply with the Principles set out in Rules 4.2.6, 4.2.7, 4.2.8 and 4.2.9.
4.1.2 (1) For the purposes of Rule 4.1.3 the term ‘activities’ means:
(a) Financial Services business;
(b) activities carried on in connection with a Financial Service business;
(c) activities held out as being for the purpose of a Financial Service business; and
(d) in relation to any particular Principle, any activity specified in (2), (3) and (4).
(2) Principles 3 and 4 also apply in a Prudential Context to an Authorised Firm with respect to the carrying on of all its activities.
(3) Principles 3 and 4 also take into account any activities of other members of the Group of which the Authorised Firm is a member.
(4) Principles 10 and 11, to the extent that it relates to disclosing to the DFSA, also applies to an Authorised Firm with respect to the carrying on of all its activities, and takes into account any activities of other members of the Group of which the Authorised Firm is a member.
4.1.3 (1) The Principles apply to an Authorised Firm only with respect to
activities carried on from an establishment maintained by it in the DIFC, unless an extension in (2), (3), (4) or (5) applies.
(2) Where another applicable Rule, which is relevant to the activity, has a wider territorial scope than that in (1), any related Principle applies with that wider scope in relation to the activity described in the Rule.
(3) Principles 1, 2 and 3 apply in a Prudential Context to an Authorised Firm with respect to activities wherever they are carried on.
(4) Principles 4 and 11 apply to an Authorised Firm with respect to activities wherever they are carried on.
